`A Short Leash' At Zenith

It's a label no boss lives with easily, and Zenith Electronics Corp. Chairman and Chief Executive Jerry K. Pearlman is no exception. Yet for most of his decade at the helm, Pearlman has been known as the "embattled" leader of the TV maker. He has had to beat back angry shareholders in proxy battles and defend a record of five straight years of losses, totaling $332 million (chart). Now, outside Director T. Kimball Brooker, who heads the board's executive committee, says the 54-year-old Pearlman is on "a short leash."

Is Pearlman finally about to be sacked, like the once-powerful chieftains at IBM, General Motors, and Westinghouse? Probably not--at least for now. That's because Zenith's board is taking a central role in crafting strategy and making peace with shareholders. The board is backing Pearlman and his vision of a profitable new world for high-tech televisions. "He's a first-rate CEO," says Brooker. Yet should the company's latest plan not bear fruit by yearend, Pearlman's successor seems to be ready. Last summer, the board promoted 41-year-old Albin F. Moschner, who joined Zenith in 1991, to president and chief operating officer.

CHECKLIST. The board's activism was spurred as long ago as late 1992, when Zenith's core TV business was careening, while losses mounted in its screen-monitor and cable-devices units. Brooker, a former Morgan, Stanley & Co. managing director who is now president of privately held Barbara Oil Co. in Chicago, concluded that the board "needed to have much more involvement in the oversight of management."

A first step was to meet far more often. Last year, the board convened ev-

ery month, vs. just five times in 1992. Meanwhile, a dormant finance committee--now transmuted into a potent executive committee of three outsiders--met 11 additional times. Tightening controls further, the board insisted on tracking a checklist of 20 items, ranging from sales to liquidity. It also changed compensation to link bonuses of up to 50% of salaries exclusively to the company's financial performance.

Pearlman appears resigned to the close monitoring. "In a very troubled industry, we need to use the best brains collectively to find a way through the mine field," he says. The 23-year Zenith veteran leaves no doubt that the board's influence has been far-reaching. Last year, the board provided major input on a plan to raise $25 million in new equity and for refinancing $34.5 million worth of high-cost junk debt at cheaper rates. More important, the board pushed a December decision to shrink capacity at Zenith's Mexican TV assembly plants and reduce a costly commitment to high-resolution picture tubes and computer monitors. That move means a fourth-quarter charge of $30 million, but it should save $50 million in costs in 1994.

This behind-the-scenes activity is buying time with shareholders, who have seen Zenith shares sink from 38 5/8 a decade ago to 8 today. Last fall, the huge California Public Employees' Retirement System, which regards Zenith as one of its weakest holdings, filed a shareholder resolution calling for a key director to be chosen as a counterweight to the chairman. After a Jan. 13 meeting of CalPERS and Zenith officials, the pension fund's manager decided to withdraw the resolution, satisfied that Brooker is the board's de facto leaderl.

BODY BLOWS. Several new shareholders also seem to think a Zenith comeback is possible. In private placements last year, Zenith sold equity to Portland's Crabbe Huson Group Inc. Crabbe Huson portfolio manager John E. Maack Jr. says he's betting that Zenith is either a mini-Chrysler Corp. emerging--or a liquidation candidate worth up to $10 a share.

Maybe. But it's an uphill battle, given Zenith's modest balance sheet and its war against such global powers as Sony, Matsushita, Philips, and Thomson. Zenith must marshal its meager resources to invest in new technology while taking body blows in an industry where no one is believed to be making money at the moment.

Rivals do notice an increased aggressiveness by Zenith in the television market, with the company upgrading models, pricing more competitively, and pushing into mass-market retailers. The newly streamlined Mexican operations, overseen by Moschner, should provide the company with a big cost advantage in TVs now that tariffs are being eliminated. Continued strong U.S. TV demand, on top of a cost structure that is $222 million below 1990 levels, may result in a $24 million profit this year, says Standard & Poor's Corp.

For the future, Zenith has been among the most active companies probing new areas, such as high-definition television, links between cable TV and personal computers, and ways to sharply boost capacity on cable channels. Pearlman insists that the company has adequate financing for the next two years. And he knows the time to act is now. "Our strategy is to make money in color TV and consumer electronics and not hang on by our fingernails until high definition or digital technology bails us out." If he fails, more than his job may be at stake. Zenith may go the way of the black-and-white TV.

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